Wednesday, July 24, 1996
Does This Bother Anyone But Me?
by The 4Shoes

OK, I admit it. I'm normally a mild-mannered D.A. from Los Angeles County who prosecutes by day and is a slave to the Motley Fool by night. As slow a learner as I've been in the investment arena over the last few months, I've still managed not to lose much. Heck, I'm like the guy who goes to Las Vegas and says "I sure hope I break even 'cause I really need the money!" It takes a lot to get me wound up, but today I'm especially tightly wrapped. No, it's not the market. True, I'm taking a beating like lots of other folks lately.

What's got me mad, however, is an article in Investor's Business Daily on July 23rd. It seems that Al Dunlap, knowing he would be named head of Sunbeam Corporation last Friday, was allowed to purchase shares of Sunbeam stock on Thursday, the day before this information became known to the public. Dunlap made $1.47 million in one day as little guys grabbed the stock after the news was released. I wasn't one of them. I've never owned or had any interest in the stock. Sunbeam isn't Foolish, and I've never given it a second glance until reading the article.

After being brutalized by the market earlier that day, however, I was stunned. Outrageous, I thought. Insider trading! The article went on to explain that, no, this was not illegal "insider trading" according to new rules approved by the SEC in May. According to IBD, officers of public companies may buy stock at any time as long as they buy *treasury* shares issued directly from the company. As long as the rules are followed, disclosure to the public isn't necessary.

The article went on to tell us that overall, analysts defended and welcomed this act of "non-insider" trading. After all, they reasoned, in buying stock, Dunlop now has a stake in the company, making his interests the same as the shareholders. In addition, his reputation for turning around companies in distress makes it a boon to the shareholders.

I couldn't help thinking, though, that we were being told that the emperor really is wearing clothes, when it's clear to all of us that he's not. No one at Sunbeam called *me* last Thursday. Gosh, you mean *you* weren't called either? Is it possible that Al is the only one in town to scoop these babies up? The day before a major announcement virtually guaranteed to send the price of the stock up?

I know that there are some people who will see nothing wrong here. I understand your point of view. Heck, I'm from L.A.; some people here still think O.J. didn't do it. And I know what you're thinking, why is this guy whining? He's just jealous; the market's going down and he wishes he were Al. You're darn right I do. Besides, I need the money more than he does. We probably all need the money more than he does. For the individual investor (read "Fool"), this is precisely the point. Al may be a well-connected rich guy, and he may deserve access to insider information because of his demonstrated abilities. But as Clint Eastwood once said, "deserv'n's got nothing to do with it."

Insider trading is still insider trading, even if the SEC says its OK. A good question for another fribble is, whose hare-brained idea was it to call this practice "ok" in the first place? Apparently, if Al had bought the stock on the open market, it would have been illegal, but because the shares were purchased directly from the company, it's ok, despite the fact that the former would not dilute the shareholders' interests, while the latter does.

I'm calm now. I'm staring at my computer trying to figure out why I've lost $500 today on Cisco Systems. It's a "blue chip" stock. It's supposed to be doing well. IBD gives it the highest EPS rating of 99. This means its earnings are better than 99% of the companies out there. Gosh, maybe I should take another look at Sunbeam. It has an EPS rating of 18. Over 80% of the companies out there are doing better than Sunbeam. I know, I know, now that Al's in charge, it should do better. Darn, I wish I were Al.

--- Bob Schuit

Transmitted: 7/24/96